THE IMPORTANCE OF LOCATION

Submitted by John C Melaniphy III on Tue, 11/17/2009 - 10:10

Have you ever heard someone say that. Are they still in business? Perhaps some are; however I would bet that more are not. It is hard for many in the pizza business to understand that locations are as important as the product, and in many cases, more important. Naturally, the product has to be acceptable, or you won't need a location. Nonetheless, without adequate locations, one is starting from a negative position. Most often, it is a short or long term death knell.

For over 30 years, I have been evaluating and selecting restaurant and fast food locations throughout the world. The primary conclusion that I can draw is that there is no substitute for a good location. Good food, quality pizza, superb promotion, fast service and competitive pricing are extremely important, but rarely will those factors overcome a poor location. Exceptions, of course, do exist. For example, a pizza operation oriented primarily to delivery usually does not need a primary location.

How important is a good location? How important is success? Do you want to win or lose? Unfortunately, the typical food operator spends most of his money developing the concept, designing the interior of a yet to be secured location, and when it comes to getting the best location, funds are limited. Thus, a secondary location is all that can be afforded. Then when sales don't reach the desired level, the operator is upset with everyone, everyone usually except himself. At that point, he or she wants a good location; usually it's too late.

The National Restaurant Association estimates that over half of new food service units fail in the first year and about two-thirds fail within two years. In terms of money, tens of millions are lost annually in this business! That is incredible. CAN YOU BELIEVE THAT? That is equivalent to the annual budget for a small sized city.

Let's examine two situations that may be familiar to you. The first occurred several years ago when I was giving a seminar on selecting good locations. An individual approached me regarding his plans to open a new pizza facility. I suggested the importance of location in his whole approach to risk capital. He countered with his unusual product that would be truly unique and therefore, in great demand. I responded that everyone in the food business considers himself unique, and that few are truly unique. Moreover, I pointed out how many fail in the food business in contrast to other businesses. I further stressed the importance of selecting or providing the best location to maximize sales and to protect against competitive hazard. Well, it fell on deaf ears. He had found a cheap location near where he should be and simply was looking to me to "bless" the location. Well, I did not. Several years later, he walked into another seminar that I was giving in a different city and interrupted the session. Before I could stop him, he began to tell his story. He had proceeded and he had failed. He wanted to stress to the attendees the need to listen to the principles of good locational selection and the penalties of a cheap or secondary site. At first I was upset at being interrupted; however, I quickly realized that he was getting the point across far better than I ever would. He had errored and had lost his "nest-egg" and was now working for someone else. He simply told them to listen and to not settle for anything less than a good location. Bankruptcy had taught him an unfortunate lesson.

The second situation occurred at a meeting with the president of a major fast food chain. I had met the man about five years before when I described that he needed a procedure and set of criteria for site selection. At that time, he told me that all he really needed was some smart real estate people to make good deals because his concept couldn't lose. (Ah! another egomanic!) Well 200 closed units later, there I was sitting in his office again to discuss the very subject that would have avoided that incredible waste of capital. At this point, naturally, he told me that he didn't want to spend much money because of the closings. He wanted a quick fix. Well, I reminded him of our previous meeting and he had the gall to tell me that they had a vice president who a hired bunch of bad people. Would you believe that he had met and approved the people? He isn't there anymore. In fact, he has been having a hard time finding a job.

The difference between the two situations is that one couldn't afford to make a mistake, and the other could afford to make the mistake and had the resources to avoid it. Nevertheless, both lost.

The time to avoid a locational mistake is before it occurs. I am fully aware that the average operator can only afford so much for a location. However, have you ever considered that the amount of sales potential really determines how much you can afford for a location? The objective is to look at both the downside risk and the upside opportunity. Another consideration is the type of location that you may be seeking. (This topic will be the subject of a separate article.) There are big differences between types of locations and types of operations, as there are big differences in the cost of locations. It pays to know the differences, so that you are informed in your decision making.

When it comes to location most food people turn to their local real estate broker. Are you aware that most real estate brokers do not understand the food business? They are in the real estate business and that they usually understand. This does not mean that there aren't some real estate brokers who do understand the food business. I believe that I can count them on less than my ten fingers. Because a broker sold some real estate to McDonald's or Pizza Hut, does not make him a food expert. It is important for the food operator to know what he needs to be successful. Also, it is important to be able to separate truth from fiction. What is a good location? The answer to that is not simple, since there are many different answers to different type of facilities and sizes of markets. Nonetheless, a good location is one which produces high sales and, at least, expected profits. Some things to think about are as follows:

OBJECTIVES
What market am I trying to serve? Is it a neighborhood? Is my product unique? Is my product competitive both in quality and price? Will I have seating? Will I deliver? How much will be pick-up? Who do I expect my customers to be? What price range am I setting? Thin or thick crust? Where will my customers park? If they are walking, how far will they walk? Is public transportation a factor, and if so, to what extent? Can I afford the location? Who is going to run the facility?

ADEQUATE POPULATION AND INCOME RESOURCES
Are there sufficient people? Do they have sufficient discretionary buying power? Is the age of population in keeping with who my customers should be? What changes are likely to take place in the area over the next five to ten years?

HOW STRONG IS COMPETITION?
Who is the competition? What type of product do they have? What are their annual sales? Why is one doing more business than another? Where are they located? What do they have that is different from what I am planning, and does it make a difference? Can I really compete?

DO I HAVE ADEQUATE ACCESSIBILITY?
What primary street will I be on? What is good about it? What kind of traffic does it have and when? What is the speed limit? Can the customers get in and out of my proposed location? Are there any impediments to ingress and egress?

WHAT KIND OF POSITION WILL THE LOCATION BE IN?
Is my pizza facility generative and if so, to what extent? Do I need to intercept people to capture sufficient business? Where should I be located? Should my locations be near generative facilities? How will I generate my business? Are my prospective customers likely to come this way?

WHAT ARE THE ECONOMICS OF THE LOCATIONS?
Is this where I should put my pizza facility? Am I sacrificing a good location for a "good deal"? What should I pay for a location? What are adequate economics? This series of articles that will be appearing in PIZZA TODAY are the result of three decades of being on the firing line in determining what will win and what will lose. The articles will answer many of your questions and create many others. Nevertheless, they will help you to know what to do, what you need to know to select good locations, and what to expect from your real estate broker. Equally as important, they will help you to establish some procedures to avoid making mistakes. Most of us can read and understand. The proof is in those who will act upon good suggestions. Remember, few people act on free advice. You might be surprised at what you can learn and put into practice profitably. Stay with us and learn!